Project financing is divided between debt financiers and equity participants. Debt financiers provide a significant part of the financing for the project at pre-agreed interest rates and accept less risk than equity financiers. Equity participants finance the balance of the project by, in effect, purchasing shares in the project. These equity shares vary in value according to project profitability. Equity participants receive higher returns than debt financiers as they accept a higher level of risk.
Because debt financiers' returns are confined to interest payments, their dominant concern is that the cash flow from the project is sufficient to meet the debt repayment schedule (including interest). Debt financiers exert pressure upon the private party, advocating they not take on risks that may jeopardise the project cash flow that is otherwise dedicated to repayment of debt. This is particularly so if the project is funded on a non-recourse basis, which prevents the debt financier from being able to call on the private party or its parent companies to meet the debt obligations. However, if repayments are made from sources other than the project cash flows, or recourse to the parent companies is available, debt financiers may be more relaxed about a wider assumption of risk. Nevertheless, limited recourse finance is the norm for projects, with the exception of smaller projects.